Stater Profits Up, Comps Down

SAN BERNARDINO, Calif. — Stater Bros. Markets here continues to boost customer counts as it holds the line on price increases — proof that its marketing strategy is succeeding, Jack Brown, chairman and chief executive officer, said last week.

Speaking with bondholders during a conference call, Brown said customer counts were up 2.2 million for the first 39 weeks of the year following an increase of 3.1 million in 2008, “and they are continuing to trend up.”

He said he attributed the increases to the chain's strategy of lowering everyday prices to hold onto existing customers and to increase the number of new customers during “these hard-pressed economic times” — a strategy that worked during economic downturns in Stater's operating area in 1985, 1994 and 1995, Brown pointed out.

For the 13-week third quarter that ended June 28, net income rose 64.1% to $15.1 million while sales dropped 0.43% to $928.6 million. Comparable-store sales, excluding the shift of the Easter holiday from last year's second quarter, declined 1.8%.

For the year to date, net income fell 11% to $29.8 million, while sales rose 0.6% to $2.8 billion and comps, excluding the Easter shift, rose 0.09%.

Gross margins fell 66 basis points to 27.38% of sales for the quarter due to operating savings at the company's new distribution center, which were partially offset by reductions in product costs, the company said. For the 39-week period, gross margins rose eight basis points to 26.85%, the company noted.

With its membership in Topco and its use of Daymon & Associates, Stater is able to buy more efficiently than ever, Brown said, and it is also able to ship product more efficiently from its new facilities here.

The warehouse is shipping product at a 99% level, he said, “and we're saving 1.3% of sales, or approximately $12 million, just from distribution efficiencies, including lower shrink,” he added.

He said Stater is awaiting approval from the Federal Trade Commission on the sale of Santee Dairies to Dean Foods. Asked how Stater will use the funds from the sale, Brown replied that the company is looking at real estate and other opportunities.

“We've looked at some locations the major chains have shut down in our area, but we didn't find any we felt we had to have, though we will continue to look.”

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